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GBP USD Forecast - Latest Pound to Dollar Exchange Rate Falls Despite Strong Sterling

September 28, 2014 - Written by James Fuller

The UK Pound to US Dollar (GBP/USD) exchange rate followed Friday's lower trend today as investors price in the possibility of a US interest rate hike in the near future.

Furthermore, the ‘Buck’ also enjoyed gains from data on Friday showing the economy grew at its most impressive rate since 2011.

Furthermore, current geopolitical tensions involving Iraq and Syria have caused volatility for Sterling as Friday sees the UK parliament recalled to vote on undertaking action against Islamic extremists.

US Dollar Exchange Rate Strength Remains Solid

The ‘Greenback’ has been strengthening on Friday as favourable data supported advancements against other currency majors. The Gross Domestic Product (GDP) report which measures output from the US economy expanded at 4.6% in the second quarter at an annualised rate. Moreover, Friday’s statistic was revised upwards from the formerly forecast 4.2%. Such a favourable report suggests that the US recovery still has plenty of momentum which could see the Federal Reserve increase borrowing costs sooner than currently expected. Economist Brittany Baumann commented: ‘We definitely see momentum. Consumer spending should benefit from strengthening labour conditions and improved financial conditions.’ Friday’s GDP figure is particularly favourable following the first quarter’s 2.1% contraction.

The Pound has faced some volatility as the vote for action in Iraq has been underway. UK Prime Minister David Cameron has stated that there is a ‘strong case’ for issuing air strikes not only in Iraq, but also in Syria where ISIL (Islamic State of Iraq and the Levant) terrorists reside. Cameron awaited confirmation that Labour leader Ed Milliband would vote in agreement with him before recalling parliament. However, at the discussion Cameron has additionally stated that any further intervention in Syria wouldn’t require the UK to seek legal formalities such as permission from the UN Security Council.

Cameron stated: ‘Let me address very directly this issue of ISIL in Syria. I am very clear: ISIL needs to be destroyed in Syria as well as Iraq. We support the action that the US and five Arab states have taken in Syria. I do believe there is a strong case for us to do more in Syria. But I did not want to bring a motion to the House today which there wasn’t consensus for. I don’t believe there is a legal barrier, because I think there is a legal barrier, because I think the legal advice is clear that – were we to act or others to act – there is a legal basis.’

Moreover, Cameron argued that any possible threat of severe danger should be met with UK action. Cameron continued: ‘Although it is right we are having this debate and right having this vote, if there was a moment when it looked as if there could be an urgent humanitarian need for intervention I would be prepared to order that intervention and then come to the House and explain why.’

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UK and US Interest Rate Hike Race

Both the US and the UK are currently exerting efforts to tighten any leftover slack in their economies in preparation for interest rate increases in the near future. Whilst the UK was speculated to see an interest rate hike this side of Christmas, much of that optimism has died in recent months. Federal Reserve Chairwoman Janet Yellen has remained fairly adamant that the central bank is in no rush to push rate hikes on the economy before it sees fit. Yellen commented: ‘The labour market has yet to fully recover. There are still too many people who want jobs but can’t find them.’

Recent weeks has seen several Federal Reserve Presidents suggest they feel the time for higher borrowing costs is nigh. However, other Fed presidents have stood up defending the present stance and asking for patience in the matter. President of the Chicago Federal Reserve Charles Evans commented: ‘We should be exceptionally patient in adjusting the stance of US monetary policy—even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks of our inflation target to appropriately balance the risks to our policy objectives.’

Sunday will see Federal Reserve Chairman Ben Bernanke speak at an economic conference in Chicago, whilst Monday will reveal US Personal Income, Personal Spending, Personal Consumption Expenditure and Pending Home Sales figures which may offer some support for the US Dollar. Alternatively, the Pound may fluctuate from the release of UK Net consumer Credit, Net Lending Secured on Dwellings and Mortgage Approvals also published on Monday.

US Dollar to Pound (USD/GBP) Climbing as US Interest Rate Prospects Bolster ‘Buck’



The US Dollar has been trending higher versus the Pound on Monday as ’Greenback’ strength persists.

Monday could see fluctuations occur between the GBP and the USD as the US releases Personal Consumption Expenditure, Personal Income, and Pending Home Sales numbers.

Furthermore, Federal Reserve President Evans is due to speak in Chicago at an Economic Conference; Fed Presidents have offered mixed views on the topic of interest rate hikes in recent weeks.

As more Presidents suggest that increases in borrowing costs need to materialise in the near future, the US Dollar is likely to remain supported against other major peers.
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